Euro Halts Three-Day Rally as Traders Get Cold Feet Before ECB

  • Banks, real-money and corporate names are selling euro: trader
  • Pound declines for a third day amid hedge-fund selling

European Central Banks Watch ECB for Policy Clues

The euro fell for the first time in four days versus the dollar as traders refrained from taking more risk on the shared currency before the European Central Bank’s latest policy decision, due on Thursday. 

The common currency, which climbed to a 14-month high against the greenback on Tuesday, dropped as banks, real-money accounts and corporate names were seen selling, according to a London-based trader, who asked not to be identified as the person was not allowed to speak publicly. While the ECB is expected to leave interest rates on hold tomorrow, there is talk among investors that the central bank may be close to winding down its extraordinary stimulus measures.

“It seems that, shortly ahead of the ECB meeting, traders are getting cold feet as the exchange rate is approaching its 2016 high at 1.1616,” Esther Reichel, a foreign-exchange strategist at Commerzbank, wrote in a note to clients.

  • EUR/USD -0.3% to 1.1524, after climbing to 1.1583 Tuesday, highest level since May 2016
    • Orders to buy-on-dip seen around 1.1510, with closest stops below 1.1480; offers at 1.1610: trader
  • One-week implied volatility on the pair fell 3bps to 8.20% after jumping to as high as 8.79%, while the one-month gauge slid 5bps to 6.93%, having climbed earlier to 7.22%
  • The ECB is studying options for the future of QE ahead of a meeting slated for as early as September, according to euro-area officials familiar with the matter
  • Western Asset Global Mgmt Ltd. has increased its exposure to euro mainly through risk reversal by selling puts and buying call options in the first week of July, Andrew Cormack, a London-based money manager said in a interview with Bloomberg News
  • Hedge funds are sellers of the pound against the dollar, according to another trader in London
    • GBP/USD -0.1% to 1.3026; EUR/GBP -0.1% to 0.8848
  • Bloomberg Dollar Spot Index +0.1%, having dropped Tuesday to lowest level since September
  • NZD/USD +0.2% to 0.7364; pair breaks into near year-high territory and may now turn focus on the long-term average line at 0.7437
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